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Study: Part D fails to cap drug prices

Ever-rising prescription prices are pushing many Medicare recipients toward the dreaded "doughnut hole" in their coverage.

By KRIS HUNDLEY
Published June 21, 2006

Dorothy Swanson, 66, of Spring Hill figures she's less than two months away from falling into Medicare Part D's dreaded doughnut hole, when she will have to pay full price for all her prescription drugs until catastrophic coverage kicks in. The prescription that's pushing her over the edge is Femara, a breast cancer drug that she said will cost about $650 for a three-month supply with no help from her insurer.

"If you take a generic drug, it looks like you're going to be okay, but brand drugs are going to put people in the doughnut hole,'' Swanson said. "I'm just so disappointed with the whole thing.''

According to a study released Tuesday, both seniors and taxpayers should be disappointed with Medicare's 6-month-old drug program. The reason? It has failed to keep a lid on ever-rising drug prices.

Families USA, a Washington, D.C., advocacy group, looked at the increases in prices for the 20 most popular drugs covered by the privately run Medicare plans, comparing the list price from mid November, when enrollment began, to prices in mid April.

The group found the median price increase for the drugs was 3.7 percent, which was virtually identical to the rise in the average wholesale price, or AWP, established by the drug manufacturers.

"This means that Part D plans are doing essentially nothing to contain the fast-rising prices by the drug industry,'' said Ron Pollack, executive director of Families USA. "Seniors and the American taxpayers who are footing the bill for three-quarters of the Part D program are getting fleeced as a result of increases in prices that are not being moderated.''

A Medicare spokesman disagreed with the percentage increase, but did not dispute the fact that drug prices have risen under the Part D plans.

"We found an increase of 3.6 percent from December through June,'' said Peter Ashkenaz, with the Centers for Medicare and Medicaid Services in Washington, D.C. "During that time the AWP was up 4.1 percent.''

Ashkenaz also said that many of the nearly 30-million seniors who have coverage under Part D are also enrolled in managed care plans that have no deductibles, flat co-pays or coverage in the doughnut hole. "So they are insulated from price increases,'' he said. "People are also switching to less costly drugs.''

Many seniors in the Tampa Bay area have only recently enrolled in the Medicare Part D programs, which had an application deadline of May 15. Those with few prescriptions or mostly generic drugs are unlikely to exhaust their plan benefits before year end.

But others, like Swanson, who had been buying her drugs through Canada, are nearing the limit fast. Gene Braden, a New Port Richey retiree who until recently helped advise seniors on Medicare issues, said people will get a rude awakening when they start having to pay out of pocket.

"I figured the average person will reach the doughnut hole within six and a half to seven and a half months on the plan and then they'll be paying the newly established retail price,'' he said. "There have been government scams before, but this is clearly a big one.''

Bob Hayes, president of the Medicare Rights Center in New York City, said his group is already hearing from people who are hitting the coverage gap. The very lowest income beneficiaries are not affected, because they get continued government help through the gap. The most affluent, Hayes said, simply pay their way through until they hit the dollar limit at which catastrophic coverage takes effect.

"But we're anticipating that many people will stop using the medicines they need because they can't pay their way through (the doughnut hole),'' he said. "And charitable assistance that's been available in the past from pharmaceutical companies is either not available or there's a waiting list.''

Both Hayes and Families USA's Pollack have repeatedly called for Medicare to be allowed to negotiate prices directly with drug companies, a right explicitly forbidden by the 2003 law which established the Medicare prescription drug plan. To show the potential bargaining power of Medicare, Families USA compared Part D drug prices with prices negotiated by the Department of Veterans Affairs. In every case, the VA's prices were much lower, with the median price difference 46 percent. Zocor (20 mg), for instance, was $127.44 at the VA in mid April compared to the lowest Part D plan price of $1,275.36, more than 900 percent higher.

The Medicare spokesman dismissed the VA-to-Plan-D pricing as a matter of comparing "oranges to apples."

"The VA has a tighter formulary (than Medicare),'' he said. "And it doesn't include many of the VA's pharmacy costs. Plus most of the VA's prescriptions are by mail order, and seniors and disabled (on Medicare) in a lot of cases prefer to buy their drugs from the local pharmacy.''

Families USA head Pollack said if Medicare can't negotiate drug prices, it should at least be able to keep closer tabs on what the middlemen in Part D programs - pharmacy benefit managers like Medco Health Solutions and Walgreens Health Initiatives - are making in profit.

"The price increases we're seeing can be interpreted in two ways,'' he said. "Either the plans have been highly ineffective in moderating price increases or the (pharmacy benefit managers) are negotiating discounts with the drug companies and not passing them on to America's seniors.

"There should be some accountability in terms of what discounts these plans are getting and what they're holding onto.''